Welfare Analysis of Pollution Control With Spatial Alternatives

This paper deals with the welfare losses resulting from emission control policies which do not take into account differences in control costs among firms and in benefits across regions. In contrast, an optimal policy considers these differences, and on their basis, requires differential controls among regions, presumably encouraging spatial adaptation of production. Drawing on an empirical analysis of welfare benefits and welfare costs of controlling particulate emissions from the iron and steel industry in two different areas, substantial gains are noted from an optimal policy over uniform and other regulations when damages vary significantly across regions.